United States: Federal Trade Commission
The US Federal Trade Commission is an independent law enforcement agency, dedicated to enforcing the US antitrust laws to protect consumers from anticompetitive mergers and business practices.1 As global trade expands and many companies operate across national borders, the FTC also increasingly works in partnership with its antitrust counterparts in the Americas and around the world to promote sound competition practices and principles. This chapter describes some of the FTC's recent competition enforcement and international collaboration efforts, as well as its policy and advocacy work from the past year.
One of the FTC's principal responsibilities is to prevent mergers that may substantially lessen competition in violation of US law. In fiscal year 2016, the FTC challenged 22 mergers after the Commission determined that they would likely result in competitive harm in the form of higher prices, reduced quality, or lower rates of innovation.2 Although most FTC merger enforcement actions result in negotiated settlements designed to maintain competition in the affected markets while allowing the merger to proceed, the FTC successfully blocked three mergers in contested litigation, resulting in federal court decisions on important aspects of merger analysis.
In May 2016, a federal district court granted the FTC's motion to enjoin Staples, Inc's proposed US$6.3 billion acquisition of rival office supply company Office Depot, Inc.3 The district court granted the FTC's motion for a preliminary injunction after finding that the transaction was likely to substantially reduce competition nationwide for the sale of consumable office supplies to large business-to-business (B-to-B) customers.4 The parties abandoned their merger plans shortly after the court's decision.
In Staples, the FTC alleged that the relevant market was a cluster of consumable office products and related services, and that a hypothetical monopolist of these products and services could price discriminate against large B-to-B customers.5 The court agreed that it was appropriate to analyse the transaction from this perspective because large B-to-B customers have distinct and specialised needs.6 The court also found persuasive that the merging parties' own business documents and bid data showed the limited options that large B-to-B customers have in the consumable office supply marketplace.7
Throughout the Staples investigation, FTC staff cooperated with the staff of the antitrust agencies in Australia, Canada and the European Union. The Canadian Department of Justice and European Union's Directorate-General for Competition each detailed an attorney to the FTC. The Canadian Competition Bureau also filed its own challenge to the merger with Canada's Competition Tribunal.
The FTC also litigated two other matters in 2016, ultimately blocking hospital mergers in Harrisburg, Pennsylvania8 and the North Shore area of Chicago, Illinois.9 In each case, the FTC alleged that the proposed merger would substantially reduce competition for general acute care inpatient hospital services sold to commercial health plans, leading to higher healthcare costs and lower quality service in local communities. In both cases, however, the district court initially rejected the FTC's proffered geographic market and denied the FTC's preliminary injunction motion. Those decisions were reversed on appeal in opinions that validate the FTC's geographic market analysis based primarily on the commercial reality of US hospital competition: that because patients prefer to receive hospital services close to home, employers require - and commercial health plans must offer - access to in-network hospitals close to where their employees live. This dynamic - rather than where patients living in the market might travel for healthcare if the cost of hospital services were to rise - determines the relevant geographic market.
In addition to its litigation efforts, the FTC preserved competition in several mergers through negotiated settlements that required divestitures to address areas of competitive concern. For example, the FTC ordered the largest divestiture in a pharmaceutical merger when Teva Pharmaceutical Industries agreed to divest 79 pharmaceutical products to 11 firms in order to acquire the generic pharmaceutical business of Allergan plc.10 The FTC also announced settlements in four other mergers involving pharmaceutical products, including generic drugs used to treat common conditions such as colitis11 and epilepsy,12 and several generic injectable drugs,13 as well as animal vaccines and parasiticides.14 In the medical device space, the FTC required divestitures to restore competition in a consummated merger involving polymer discs used in hard contact lenses.15 The FTC also negotiated a consent order that required Abbott Laboratories to divest two medical device businesses in order to resolve charges that its proposed US$25 billion acquisition of St. Jude Medical, Inc would harm competition in the US markets for vascular closure devices, steerable sheaths, and lesion-assessing ablation catheters.16
In addition to preserving competition in healthcare markets, the FTC protected competition in several important consumer and industrial markets. For example, after reviewing the merger of international supermarket operators Koninklijke Ahold and Delhaize Group, which together operate five well-known US supermarket chains, the FTC required the divestiture of 81 stores to preserve supermarket competition in 46 local US markets.17 The FTC also required divestitures in several mergers involving industrial products, such as industrial gases,18 automotive ignition insulated-gate bipolar transistors used in cars,19 and cement.20
International cooperation in merger review
International cooperation on competition cases under common investigation can help to ensure compatible results and creates efficiencies in the use of limited agency resources. In many cases, cross-border cooperation is greatly aided by international waivers of confidentiality from the firms under investigation. Confidentiality waivers enable more complete communication and coordination among competition agencies, which can expedite transaction review.
In fiscal year 2016, the FTC cooperated with international counterpart agencies in 46 antitrust investigations of mutual concern. This included cooperation with competition agencies from Australia, Belgium, Brazil, Canada, China, the European Union, Germany, India, Ireland, Japan, Korea, Mexico, South America, Taiwan and the United Kingdom. Most of the FTC's enforcement cooperation occurred during merger reviews.
Cooperation on merger cases can take many forms, including discussing industry context and background, comparing substantive approaches to market definition and competitive effects, participating in joint conference calls with the merging parties or third parties, and coordinating on merger remedies.
One recent and notable example of the FTC's cooperation efforts involved the proposed merger of Ball Corporation and Rexam PLC.21 The FTC cooperated closely with competition authorities in Brazil, Mexico and the European Union regarding the proposed merger, which would have combined the two largest aluminum beverage can makers in both the US and the world. The FTC determined that the transaction was likely to harm competition in three US regional markets for standard 12-ounce aluminum beverage cans and in the worldwide market for specialty beverage cans. Brazil's CADE and the European Union's Directorate General for Competition also determined that the transaction was likely to harm aluminum can competition in their jurisdictions. To resolve these concerns, the parties agreed to divest 22 aluminum beverage can plants located in the US, Brazil and Europe, as well as innovation and support assets located in the US and Europe, to Ardagh Group SA. International cooperation among the agencies helped to get the best remedy for consumers, because a single divestiture of all these assets to one buyer was important to preserve competition for many international customers.
Another example of significant international cooperation involved the proposed merger of NXP Semiconductors NV and Freescale Semiconductor Limited.22 Prior to the merger, these firms were the world's two largest manufacturers of RF power amplifiers - semiconductors that amplify radio signals used to transmit information between electronic devices such as cellular base stations and mobile phones.23 To settle FTC charges that the proposed merger would substantially lessen competition in the worldwide market for RF power amplifiers, the parties agreed to divest NXP's RF power amplifier business, including a manufacturing facility in the Philippines, another facility in the Netherlands, all patents and technologies used exclusively or primarily for the RF power amplifier business, and a royalty-free licence to use all other NXP patents and technologies required by that business. Throughout the investigation, FTC staff cooperated with staff of the antitrust agencies of the European Union, Japan and Korea, including on the analysis of the proposed transaction and potential remedies, to reach a consistent outcome on an international scale.
In addition to its merger enforcement programme, the FTC maintains a robust programme to identify and stop anticompetitive conduct. This year was especially active, as the Commission brought several notable cases.
For instance, the FTC brought its first case challenging a ‘no-authorised generic' (no-AG) commitment as a form of reverse payment. The FTC charged branded drug maker Endo Pharmaceuticals and several generic firms with entering into illegal reverse payment agreements to delay the entry of generic versions of two of Endo's top-selling branded drugs.24 With a no-AG commitment, the branded company promises to delay introduction of an ‘authorised generic' version of the drug, which typically sells at a discount to the branded price and recaptures some of the sales that would otherwise go to the generic entrant. By making a no-AG commitment, however, Endo gave up its right to market an authorised generic in exchange for a share of its extended monopoly profits and an agreement by the generic firm to delay generic entry. The stipulated order entered by the federal court prohibits Endo from entering into reverse-payment settlements that contain certain provisions, including no-AG commitments, for
The FTC also recently filed its first case alleging monopolisation through an abuse of government process. The FTC's federal court complaint charges Shire ViroPharma Inc with violating the antitrust laws by abusing government process to delay generic competition for Vancocin HCI capsules, one of its branded prescription drugs. The FTC alleged that Shire submitted 43 filings to the US Food and Drug Administration (FDA) and sued the FDA three times in an effort to delay the FDA's approval of a generic drug and exclude competition.26 This matter is pending in federal court.
In other litigation news, the FTC charged 1-800 Contacts, the largest online retailer of contact lenses in the United States, with orchestrating a collection of anticompetitive agreements with rival online contact lens sellers to suppress competition in online search advertising auctions, and restrict truthful and non-misleading internet advertising to consumers.27 The matter is pending before an administrative law judge.
Turning to unilateral conduct, the FTC charged Invibio, the first company to sell implant-grade polyetheretherketone (PEEK), a high-performance polymer used in medical implant devices, with using exclusive supply contracts to maintain its monopoly and prevent new entrants from developing into fully effective competitors.28 Invibio adopted an ‘all-or-nothing' contract negotiating strategy after two companies developed new PEEK products. The FTC alleged that through these contracting practices, Invibio not only kept PEEK prices high to medical device companies, but also stifled incentives for others to develop new and improved forms of PEEK. To settle the charges, Invibio agreed to an FTC consent order that generally prohibits it from entering into exclusive supply contracts or preventing current customers from using an alternate source of PEEK in new products.
The FTC is also concerned about other types of unilateral conduct that stave off emerging competition, including acquisitions designed to keep others from developing new products. For instance, the FTC charged Questcor Pharmaceuticals, Inc with illegal monopolisation when it acquired the rights to develop a drug that threatened its monopoly over Acthar, the only therapeutic adrenocorticotropic hormone (ACTH) drug sold in the United States.29 Acthar is a specialty drug used as a treatment for infantile spasms, a rare seizure disorder afflicting infants. In other parts of the world, doctors treat these patients with Synacthen Depot, a synthetic ACTH drug available at a fraction of Acthar's price. The FTC alleged that Questcor, while benefiting from an existing monopoly over the only US ACTH drug, illegally acquired the US development rights to Synacthen Depot, and thereby preserved its monopoly and prevented other bidders from developing a competing synthetic ACTH drug. Under a stipulated settlement filed in federal court, Questcor (now known as Mallinckrodt ARD Inc) and its parent Mallinckrodt plc agreed to pay US$100 million in equitable monetary remedies and grant a licence to another company to develop Synacthen Depot to treat certain conditions.30
Competition research and advocacy
The FTC also broadly shares its expertise on competition issues with interested policymakers through competition advocacy. These written advocacies provide guidance and recommendations on how to incorporate competition principles into laws, regulations or policies.
In 2016, most of the FTC's advocacy concerned occupational licensing issues, such as scope-of-practice restrictions that prevent certain health professionals from being able to take full advantage of their training and expertise.31 The FTC also submitted advocacy comments regarding efforts by state legislatures and regulators to secure antitrust immunity for anticompetitive healthcare collaborations.32
Hosting workshops on emerging business practices and technologies is another way that the FTC explores competition policy issues and stays current with industry developments. Last year, the FTC hosted two policy workshops, one that examined state regulation of automobile sales33 and another that explored competition and consumer protection issues related to solar distribution generation.34 The FTC also issued reports on internet and application-based ‘sharing' economy platforms35 and the activities of patent assertion entities.36
The FTC also engages in periodic self-review, and in early 2017 completed a study that evaluated the effectiveness of FTC merger orders issued between 2006 and 2012.37 The report confirmed that the FTC's practices related to designing, drafting and implementing its merger remedies are generally sound, but also identified areas for improvement. For instance, the report found that identifying an upfront buyer did not ensure the success of divestitures involving limited packages of assets, but that every divestiture that required the parties to sell a stand-alone ongoing business succeeded in maintaining premerger levels of competition. Based on these and other findings, the FTC published best practices related to its merger remedy process.
International policy engagement
In addition to promoting cooperation in cases such as those described above, the FTC, together with the Antitrust Division of the US Department of Justice (DOJ), works to promote convergence in favour of sound, effects-based economic analysis and in support of procedural fairness in connection with investigations. The US agencies do this this through multiple channels, such as regularly working on a bilateral basis with other antitrust agencies around the world.38 For example, the FTC and DOJ recently invited case handlers from Mexico's COFECE to join a long-standing series of regular meetings between case handlers from the US and Canadian agencies to share experience in merger investigations. The US agencies also developed a regular series of Spanish-language webinars organised by the antitrust agencies in the Americas to share experience in particular sectors or with particular types of investigations.
In 2016, the FTC and DOJ entered into a cooperation arrangement with Peru's competition authority to promote increased communication and case cooperation.39 The arrangement is the US agencies' fifteenth bilateral cooperation arrangement and compliments earlier cooperation arrangements in the Americas with Brazil, Canada, Chile, Colombia and Mexico.
The FTC is also actively engaged in several multilateral organisations such as the Organisation for Economic Co-operation and Development (OECD) and International Competition Network (ICN) that promote dialogue and convergence toward sound competition policy. For instance, the FTC recently participated in the ICN's sixteenth annual conference in Portugal. At the conference, the network adopted recommended practices on merger notification and review developed by its Merger Working Group, which is co-chaired by the FTC, and approved new work on a framework for evaluating exclusionary conduct developed by its Unilateral Conduct Working Group.40
Last year, the FTC also continued to share its competition law and policy experiences with its foreign counterparts through its technical assistance programme, organising 40 programmes for officials from 64 countries, from Albania to Zimbabwe, and conducting workshops in numerous countries, including 13 countries in the Americas.41 Through the FTC International Fellows and Interns Program, staff from non-US competition agencies work directly with FTC staff on antitrust investigations and enforcement actions, subject to appropriate confidentiality protections. In fiscal year 2016, the FTC hosted eight participants from agencies in the Americas.42
The FTC is also committed to developing guidance documents that provide clarity and transparency to multinational companies and others. In early 2017, the FTC and DOJ issued revised joint Antitrust Guidelines for International Enforcement Cooperation,43 an update of the 1995 Antitrust Enforcement Guidelines for International Operations that reflects the agencies' continued commitment to working with foreign authorities on enforcement and policy matters. The revised guidelines describe the current practices and methods of analysis the agencies' employ when evaluating and conducting investigations of conduct with an international dimension.
The FTC remains committed to working with its counterpart agencies in the Americas and around the world, and will continue to use the full range of its enforcement, research and advocacy tools to protect consumers and promote competition in 2018 and beyond.
- The FTC shares jurisdiction with the Antitrust Division of the US Department of Justice (DOJ) to enforce the antitrust laws of the United States.
- The FTC fiscal year is 1 October through 30 September.
- The FTC initiated an administrative action and sought in federal court a temporary restraining order and preliminary injunction to prevent the parties from consummating the merger and to maintain the status quo pending the administrative proceeding. In re Staples, Inc. and Office Depot, Inc., Dkt. 9367 (complaint issued 7 December 2015); FTC v. Staples, Inc., No. 1:15-cv-02115-EGS (D.D.C.).
- FTC v. Staples, Inc., 190 F. Supp. 3d 100 (D.D.C. 2016).
- Large B-to-B customers are commercial businesses that spend at least US$500,000 per year on consumable office supplies for their employees' own use. Staples, 190 F. Supp. 3d at 118.
- Id. at 127.
- Id. at 122, 131-33.
- FTC v. Penn State Hershey Med. Ctr., 838 F.3d 327 (3d Cir. 2016).
- FTC v. Advocate Health Care Network, 841 F.3d 460 (7th Cir. 2016).
- In re Teva Pharm. Indus. Ltd. and Allergan plc, Dkt. C-4589 (final order issued 15 September 2016).
- In re Lupin Ltd., Dkt. C-4566 (final order issued 20 April 2016).
- In re Mylan, N.V., Dkt. C-4590 (final order issued 7 September 2016).
- In re Hikma Pharm. PLC and C.H. Boehringersohn AG & Co. KG, Dkt. C-4572 (final order issued 28 March 2016).
- In re C.H. Boehringer Sohn AG & Co. KG, Dkt. C-4601 (final order issued 14 February 2017).
- In re Valeant Pharm. Int'l, Dkt. C-4602 (final order issued 25 January 2017).
- In re Abbott Labs. and St. Jude Med., Inc., Dkt. C-4600 (final order issued 14 February 2017).
- In re Koninklijke Ahold N.V. and Delhaize Grp. NV/SA, Dkt. C-4588 (final order issued 14 October 2016).
- In re Am. Air Liquide Holdings, Inc., Dkt. C-4574 (final order issued 15 July 2016).
- In re ON Semiconductor Corp., Dk. C-4593 (final order issued 30 September 2016).
- In re HeidelbergCement AG and Italcementi S.p.A., Dkt. C-4579 (final order issued 15 August 2016).
- In re Ball Corp. and Rexam PLC, Dkt. C-4581 (final order issued 15 August 2016).
- In re NXP Semiconductors N.V., Dkt. C-4560 (final order issued 21 January 2016).
- FTC Press Release, ‘FTC Requires NXP Semiconductors N.V. to Divest RF Power Amplifier Assets as a Condition of Acquiring Freescale Semiconductor Ltd.' (15 November 2015).
- Two of Endo's generic contract partners, Teikoku Seiyaku Co, Ltd and Teikoku Pharma USA, Inc, agreed to settle the charges for agreements related to Lidoderm, a topical pain patch. See Stipulated Order for Permanent Injunction, FTC v. Teikoku Pharma USA, Inc., No. 16-cv-01440 (E.D. Pa. 30 March 2016). Charges are still pending, however, against other generic companies. See FTC v. Allergan plc, No. 17-cv-00312 (N.D. Cal. 23 January 2017) and In Re Impax Labs., Inc., Dkt. 9373 (complaint filed 23 January 2017).
- Joint Motion for Entry of Stipulated Order for Permanent Injunction, FTC v. Allergan plc, No. 17-cv-00312 (N.D. Cal. 23 January 2017).
- FTC v. Shire ViroPharma Inc., No. 1:17-cv-00131-UNA (D.Del. 2017) (complaint filed 7 February 2017).
- In re 1-800 Contacts, Inc., Dkt. 9372 (complaint filed 8 August 2016).
- In re Victrex, plc, Dkt. C-4586 (final order issued 13 July 2016).
- FTC v. Mallinckrodt ARD Inc., No. 1:17-cv-00120-EGS (D.D.C.) (complaint filed 18 January 2017).
- Stipulated Order for Permanent Injunction and Equitable Monetary Relief, FTC v. Mallinckrodt ARD Inc., No. 1:17-cv-00120-EGS (D.D.C.) (ordered 30 January 2017).
- See, eg, FTC Press Release, ‘FTC Staff Comment: Proposed Dental Services Measure in Georgia Would Likely Enhance Competition and Increase Access to Care for Consumers' (1 February 2016); FTC Press Release, ‘Federal Antitrust Agencies Submit Joint Statement Encouraging Puerto Rico to Consider Giving Authority to Optometrists to Prescribe Medications' (18 May 2016).
- See, eg, FTC Staff Comment to Southwest Virginia Health Authority regarding cooperative agreement application of Mountain States Health Alliance and Wellmont Health System, 30 September 2016 (advocacy commenting on cooperative agreement application that would effectively immunise hospital merger from federal antitrust law); FTC Staff Comment to Senator Larry C. Stutts, Alabama State Senate regarding Alabama House Bill 241 and Senate Bill 243, 2 May 2016 (advocacy commenting on state legislation that would immunise anticompetitive mergers, price fixing, boycotts, and other anticompetitive conduct from federal antitrust law).
- FTC Press Release, ‘FTC to Host Public Workshop Examining the U.S. Auto Distribution System' (14 December 2015).
- FTC Press Release, ‘FTC Will Examine Competition and Consumer Protection Issues in the Rooftop Solar Business' (12 April 2016).
- FTC Staff Report, The ‘Sharing' Economy: Issues Facing Platforms, Participants, and Regulators (November 2016). This report was prepared in connection with an FTC sharing economy workshop held in June 2015.
- FTC Report, Patent Assertion Entity Activity: An FTC Study (October 2016).
- FTC Report, The FTC's Merger Remedies 2006-2012: A Report of the Bureaus of Competition and Economics (January 2017). This report builds on a similar study released in 1999 that led to a number of important reforms to the FTC's remedy approach, such as requiring upfront buyers and appointing independent monitors more often. See FTC Staff Report, A Study of the Commission's Divestiture Process (August 1999).
- For example, in 2016, the FTC and DOJ held bilateral meetings with senior officials from competition authorities in China and Japan on issues including the role of competition enforcement and advocacy in promoting innovation, and antitrust enforcement involving intellectual property. FTC Press Release, ‘FTC and Justice Department Officials Meet with Officials of Chinese Antitrust Agencies' (13 April 2016); FTC Press Release, ‘Officials from U.S. and Japan Participate in 35th Bilateral Meeting in Washington to Discuss Antitrust Enforcement' (14 July 2016). The FTC and DOJ also held a trilateral meeting with senior officials from competition authorities in Canada and Mexico. FTC Press Release, ‘Officials from the United States, Canada, and Mexico Participate in 2016 Trilateral Meeting in Toronto to Discuss Antitrust Enforcement' (20 May 2016).
- FTC Press Release, ‘Federal Trade Commission and Department of Justice Sign Antitrust Cooperation Agreement with Peru's National Institute for the Defense of Competition and the Protection of Intellectual Property' (26 May 2016).
- FTC Press Release, ‘International Competition Network Adopts Recommended Practices on Merger Notification and Review and New Work on a Framework for Analyzing Unilateral Conduct' (12 May 2017). The ICN's work product is available on the ICN website at www.internationalcompetitionnetwork.org.
- Additional information regarding the FTC Technical Assistance Program is available on the FTC website at www.ftc.gov/policy/international/international-technical-assistance-program.
- Additional information regarding the FTC International Fellows and Interns Program is available on the FTC website at www.ftc.gov/policy/international/international-fellows-program.
- FTC and DOJ, ‘Antitrust Guidelines for International Enforcement and Cooperation: Issued by the U.S. Department of Justice and Federal Trade Commission' (13 January 2017).